[Contribution By Tengen MK-2] While browsing through NES games,you'll occasionally come across some that look...different. They're black, they have a slightly different shape, and they're all made by the same
company known as Tengen. Sometimes you'll even come across the same game in a grey cartridge, as well as a black Tengen cartridge. So who was Tengen? And why did they make these
weird-looking video games? It all revolves around a big legal battle between
two juggernauts in the video game industry. A case that would not only re-define laws, but change how third-party developers made video games on home consoles. Let's take a look. In 1984, Atari was in trouble. The video game crash of 1983, brought on by a flood of consolesand poorly made games, devastated the once prolific company. At the end of the year, Atari had lost $539 million. Massive layoffs soon followed. Business deals were cancelled. Entire divisions were closed or consolidated. In May of 1984 alone,
700 employees were laid off. Steve Ross, president of parent company
Warner Communications, had seen enough. It was time to pull the plug and
recuperate whatever losses he could. He came up with a plan to split the company and sell them for as much as possible. Atari was split into two: Atari Corporation and Atari Games. Atari Corporation handled the consumer products, such as their line of personal computers
and video game consoles, while Atari Games had control of the
coin-operated arcade games and software. On July 2, 1984, the majority of
Atari Corporation was sold to Jack Tramiel, the founder of the computer company, Commodore. Although Tramiel could have purchased
Atari Games for practically nothing, he had little to no interest in video games. His background was in computers. Warner continued to look for a buyer, as Atari Games was losing money and suffered more layoffs. The next year, Atari Games finally found a buyer. It was a Japanese man
by the name of Masaya Nakamura, Who owned a company named... Namco. On February 4, 1985,
he purchased 60% of Atari Games through his US subsidiary,
Namco America, for $10 million. For Nakamura, it was a long time dream realized. Atari was once the dominant game company in the industry And now... he owned it. But his dream would be run by another man, the same man Nakamura sent to the
United States to run Namco America. His name was Hideyuki Nakajima. In his book "Game Over," David Sheff
described Nakajima, as "unusually open". He was a spark plug in a world
of staid and sober executives. In short: the perfect type of man
to turn around Atari Games. Nakajima even had a history with the company. Back in 1973, Nolan Bushnell and Ted Dabney were looking to
take the distribution of Atari products international. Thus was born Atari Japan. Nakajima, a veteran of the Japan Art Paper Company, was named the general manager. In the beginning, it was a disaster. Atari Japan struggled to find
distributions for their arcade games. They turned to another company for help: Nakamura Amusement Machine
manufacturing COmpany, or... Namco, for short. Nakajima asked Masaya Nakamura to help distribute the games
in exchange for a cut of the profit. Nakamura agreed. However, Atari Japan kept losing money. Nakajima even had to use some of his own personal savings to keep the operation going. In the end, it was his own employees
who were stealing money from the company. In a last-ditch effort, Nakajima flew to the United States
to meet with Atari executives, begging to let him keep going. But Atari was losing too much money and decided to sell Atari Japan to the highest bidder. At first, that was Sega, for a measly $50,000. But Namco saw this as a great
opportunity to get into video games and agreed to purchase Atari Japan for $550,000 and the rights to distribute
Atari games throughout the country. Nakajima kept his job and within a few years, Namco would utilize the resources it gained from the transaction to become one of the biggest
video game companies in Japan. They churned out hits such as
Pac-Man, Galaga and Pole Position. In 1978, with business doing well, Nakajima convinced Nakamura to open a subsidiary company over in the United States. He agreed, and Namco America was born. Their location? A few blocks away from the old
Atari offices in Sunnyvale, California. Namco America licensed their popular
arcade games to American companies, with Midway getting two big hits: Galaga and Pac-Man. Nakajima also struck up a
deal to merchandise their games. Pac-Man memorabilia was everywhere nationwide, and Namco America made a ton of money. Now in 1985, it was up to
Nakajima to save Atari Games. He reduced the salaries of
vice presidents and directors, froze salary increases for a year, and laid off 30 employees. Nakajima himself took a 20% pay cut. While he was able to get Atari Games
out of financial trouble, he had disagreements with Masaya Nakamura on what direction to take the company. Nakamura was hesitant to put
more resources into the company, seeing them as a competitor to Namco. He also didn't enjoy the fact
that Warner still owned 40%. In 1987, Nakajima and Nakamura
came to an agreement: Nakajima, along with several employees
and Warner Communications, would purchase 20% of the
company from Nakamura. Nakajima would become the president, and resign from his position at Namco America. For Nakajima, everything had come full circle. He was once working for Atari,
struggling to make it a success in Japan, and now, he was running it in America. He soon turned his eye
toward the home console market, which had recently seen a resurgence
with the Nintendo Entertainment System. At the time, Sega was not licensing
games for their Master System, And the Atari 7800, released by Jack Tramiel's Atari Corporation, was barely doing anything. The NES was the way to go. But there was a problem. Atari Games couldn't actually
publish games under the Atari name, as Atari Corporation own the
rights to the consumer division. To get around this, Atari Games formed a new subsidiary, known as Tengen. Nakajima came up with the name "Tengen"
in a similar fashion as Bushnell came up with Atari. Bushnell and Dabney named Atari
after a term used in the Japanese game Go. The word "atari" is used in the same way
someone would say "check" while playing chess. Nakajima chose the word "tengen", which represents the center of a Go board – the origin of Heaven. Getting your game officially licensed by Nintendo
meant following strict rules and regulations. Nintendo wasn't taking any chances, not after the video game crash of 1983. Poor games littered the market, and this was their version of quality control. To become a licensee, you first had
to submit your games for approval. Nintendo had the right to make changes such as removing blood or religious symbols. Once approved, you had to purchase
your cartridges from Nintendo. The cost ranged anywhere from $9 to $14, With a minimum order of 10,000 cartridges. Companies were only allowed
to make five games per year, and were to be exclusive to the NES for two years. Some companies formed subsidiaries
in an effort to publish more games. Konami published several games under Ultra, while Acclaim used LJN. However, the most brilliant move by Nintendo
was their lockout chip technology, which prevented unlicensed games
from even playing on the system. Both the console and the game cartridge
contained a security chip, that spoke to each other with a program called "10NES". If they could communicate successfully, the game would play. Nakajima wasn't a fan of the licensing agreement, but he met with Nintendo of America
president Minoru Arakawa and vice president Howard Lincoln anyway. There was mutual interest between the two companies. Nintendo saw Atari Games as a recognized brand, with a slew of great titles
they could potentially bring to the NES. Nakajima pushed hard for a better deal. This was Atari, who basically
invented the video game industry. Arakawa and Lincoln wouldn't budge. All licensees had to be treated the same. Although upset, Nakajima reluctantly agreed. On January 18, 1988, Tengen officially became a Nintendo licensee. Their first three games were announced that same year at the June Consumer Electronics Show: Gauntlet, Pac-Man and R.B.I. Baseball. After the agreement, Nakajima and
Arakawa would frequently meet for dinner or play a round of golf – a nice gesture between two business partners. However, Arakawa noticed Nakajima was quite chatty, asking many questions about Nintendo's business and its distribution strategy to retailers. Not wanting to seem rude, and having good faith in Nakajima, Arakawa shared information. He had no idea that behind
closed doors at Atari Games, engineers were working to
crack the NES lockout chip. A year earlier in 1986, Atari Games was aware of the strict
demands of the Nintendo licensee program. Nakajima, along with other executives, were not fans. Nintendo was new to the video game world, and their demands seemed arrogant, attempting to control the market. Said Chief Operating Officer Dan Van Elderin: "The way Nintendo did business... ...was like Ford introducing a car that could only use Ford gasoline." Lawyers for Atari Games
read over the licensing agreement to see if there was any way to make games for the NES without going through Nintendo. There was a way, but it all hinged on being able to get around the lockout chip technology. Engineers were given the
task to reverse-engineer the chip. After many attempts, they found no success. One engineer, Pat McCarthey wrote: It was clear that in order to
reverse-engineer the chips, They would need access to the "10NES" program. However, Nintendo had copyrighted the algorithm. Now, it is true that anyone can walk into the copyright office and ask to look at copyrighted material. But for certain materials such as "10NES", you can't take a copy with you, or even take notes... ...unless that material is the subject of litigation. Atari Games came up with a plan. Atari lawyers filled out a form,
requesting a copy of the "10NES" program, falsely alleging that they were the defendants in a case regarding the algorithm
in the U.S. District Court of Northern California. In no time at all, Atari Games suddenly had a copy of the "10NES" program, obtained illegally. With access to the program, Atari engineers had no trouble at all
reverse-engineering the lockout chips. They created a similar chip that contained their duplicate "10NES" program and tested it in a cartridge. It worked. They dubbed their clone "Rabbit". Atari Games' plan to circumvent the
strict NES licensing agreement was coming to fruition. Tengen may have picked the worst possible time to become a Nintendo licensee. In 1988, the entire electronics industry
was experiencing a chip shortage, simply due to high demand. Nintendo was hit hard. Because they manufactured every single game, they had to let all of their licensees know they would be getting fewer
games than originally planned. Some companies were furious. The loss of sales would cut deep into their profits. Dan Van Elderin,
Chief Operating Officer of Tengen, asked if they could just find surplus
chips themselves, without Nintendo. Nintendo agreed, but only if Tengen
would pay the difference in cost. The chips also had to pass their standards. After finding a supplier in the United States, Tengen submitted the chip to Nintendo for review. It was denied. One Tengen spokesperson claimed that due to the chip shortages and Nintendo's policies, they were only able to satisfy
less than 10% of their demand. Nakajima saw this as the final straw. Nintendo's licensing policies
were hurting their business, and they had finally found a
way around the lockout chip. It was the perfect time to strike. In December of 1988, Atari Games
sued Nintendo for anti-trust violations and unfair competition for a sum of $100 million. At the same time, they sent out their new games containing the "Rabbit" chip to retail stores – the very first unlicensed games
for the Nintendo Entertainment System. Tengen games are similar in size
and weight to a standard NES cartridge. They have a curved end and two tabs
to help you pull the game out of the system. Each game has the "Tengen Seal of Quality" and came in a box with it's very own dust cover. Tengen only made three officially licensed games, but they also made unlicensed versions of them as well. The Tengen library was notable
for their R.B.I. Baseball series, which is considered the best baseball game on the NES, as well as some good arcade games
like Gauntlet and Rolling Thunder. They even published a few
Sega titles such as After Burner. Sega on the Nintendo Entertainment System, who would have thought? There was also the close relationship with Namco, which resulted in ports of Pac-Man, Ms. Pac-Man and Pac-Mania. Tengen even made their own
version of Tetris for a little while before a court ordered them
to stop distributing the game due to licensing issues. But we'll save that story for another time. After the 1988 Christmas party at Nintendo, Minoru Arakawa and Howard Lincoln received the news that Atari Games was suing them. They were completely blindsided. They quickly contacted Nintendo of Japan. President Hiroshi Yamauchi was clear: Atari Games and their unlicensed
cartridges must be stopped. Nakajima met with Arakawa to discuss the lawsuit. He told him he never wanted it to come to this But due to Nintendo's strict rules, he felt he had no choice. Nakajima offered to withdraw the suit. "Let us do our own manufacturing," he said. Arakawa said "No." The lawsuit would continue. Atari Games went to the media, accusing Nintendo of creating a chip
shortage in order to keep prices high. Nintendo vigorously denied the claim,
calling it "absolute nonsense." For Nintendo vice president Howard Lincoln, It was a total betrayal of their initial
licensing agreement with Tengen. He stated, "I thought to myself: you have no idea what you have taken on. A tiger... who will skin you... piece by piece." Nintendo quickly countersued in February of 1989, stating that Tengen had entered the
Nintendo licensee program fraudulently, obtaining technical support
and detailed information about retailers for the sole purpose of
making their unlicensed games. They also sued for Tengen sales of
unauthorized and unsupported games on the NES, as well as patent infringement
on their lockout security system. Later that year in November, they amended their suit, adding that Atari Games unlawfully obtained their copyrighted "10NES" program from the US copyright office. All of the allegations and suits
would be condensed into one case. It was only the beginning of a long,
drawn-out battle between the two juggernauts. The media took their sides – The majority rooting for Tengen. "Whom should the average consumer
root for? Clearly Atari Games. If it wins, certainly more cartridges and
a wider variety of games will be available for users. If Nintendo wins, the negative consequences for the rest of the computer industry could be staggering. If the makers of hardware had veto power over what software gets made, consumers would suffer. Fewer programs would be available
and they would certainly cost more. The Atari Games suit is an effort
to open up the marketplace." – Dennis Lynch, Chicago Tribune. Nintendo employed a strategy of
intimidation outside of the courtroom, threatening retailers with legal action or cutting them out of supply
if they sold Tengen products. Nintendo products sold consistently throughout the year for retailers, sometimes making up 50% of sales. For some, it was simply too risky
to sell the unlicensed games. Retailers such as Toys "R" Us,
Wal-Mart, Target and Circus World all stopped selling Tengen games. Atari Games filed an injunction in order to
stop Nintendo from threatening its customers. Judge Fern Smith, who would oversee the entire case, ruled that Atari and Nintendo could
not interfere with each other's customers. Both companies appealed, and the injunction was lifted. Nintendo continued to contact retailers. Despite the legal battles and retailer threats, Tengen was seeing good
returns on its unlicensed games. Sales were up by 40%. In March of 1991, in the U.S.
District Court of Northern California, Judge Fern Smith would decide whether or not Tengen had a legal right to sell their unlicensed games. It all boiled down to the "Rabbit" chip
included in every Tengen cartridge. Did it use an exact copy of the "10NES" program in order to authenticate with the chip inside the NES? Atari Games argued that they
took the copyright office documents because it was ridiculous to think someone could reverse-engineer a chip just by looking at papers. They felt they were entitled to, quote, "self-help." They also claimed that the
documents weren't important anyway, as they had already cracked the "10NES" program. But evidence suggested otherwise. The copyright on the "10NES" program was dated 1985. However, in 1987, Nintendo made
some modifications to the program, Deleting some unnecessary code. The "Rabbit" chip contained the deleted code. "10NES" also had some other functions, beyond just unlocking the console. The "Rabbit" program contained those as well. It was clear to Judge Fern Smith that the program contained inside Tengen's "Rabbit" chip was a direct copy of the "10NES" program. She ordered Atari Games to immediately cease producing, distributing, and selling their unlicensed games, as well as recall all product
currently on store shelves. Smith also harshly criticized
the company for their actions. "If Atari did not need copyrighted
information in order to achieve its goal, then it should not have deceived the copyright office in order to bring the "10NES" code back to the lab. Atari decided to make its cartridges functionally indistinguishable from Nintendo's own games by admittedly copying more than what was needed to make a game work on the NES console. A preliminary injunction is appropriate." – Judge Fern Smith. Atari Games would appeal, claiming the decision would force
them to shut down Tengen, laying off 39 employees – a huge financial impact. Judge Fern Smith agreed and suspended her decision. Tengen games would remain on store shelves... for now. On September 10, 1992, a case went to the U.S. Court of Appeals in Washington, D.C. As a defense to their copyright infringement,
Atari Games argued that Nintendo had misused its copyright
of the lock-out program, giving them control of games
developed by third-party companies. They asserted that Nintendo's misuse of copyright should prevent copyright enforcement. They also argued that reverse-engineering
the chip should fall under fair use. The court disagreed with copyright misuse, stating: They did, however, rule that
reverse-engineering was, fair use, stating: Ultimately, the court agreed with
Judge Fern Smith's original decision: Atari Games had stolen the "10NES" program code, and ordered them to stop making and selling their unauthorized Tengen game cartridges for the NES. After 4 years of litigation, the battle was over. Tengen ceased production of NES games and shifted their focus to other systems, mostly the Sega Genesis,
which was gaining ground in the market share. Atari Games' accusation that Nintendo violated
anti-trust laws would be settled out of court. Although Nintendo won the battle, Atari Games' lawsuit ultimately
brought about sweeping changes. The case helped establish
the legality of reverse engineering. It also reformed how the copyright office
gave access to copyrighted material. Their anti-trust suit also
got the attention of other companies. Jack Tramiel's Atari Corporation also sued Nintendo for $250 million for violation of anti-trust laws in 1989. Tramiel claimed Nintendo's practice
of console exclusivity for two years, prevented Atari from getting good games. The case would ultimately be dismissed. In December of 1989,
Rep. Dennis Eckhardt of Ohio urged the Justice Department's anti-trust division to investigate Nintendo, citing: "Unreasonable tactics to restrain competitors." This led to an investigation,
by the Federal Trade Commission. A year later, in October of 1990, Nintendo announced they had decided
to ease their licensing restrictions which included the two-year exclusivity rule. In 1991, the Federal Trade Commission
and Nintendo settled the case. Nintendo was ordered to send $5 vouchers to any person who had purchased an NES game Between June of 1988 and December of 1990. Nintendo dealers were now allowed to sell games, cartridges and accessories at any price they chose. The case even reached
the Japanese video game market. In 1989, Namco had to renew their
initial licensing agreement with Nintendo, which originally gave them special provisions
for being one of the first licensees. Nakajima's old boss, Masaya Nakamura, met with Nintendo president Hiroshi
Yamauchi to discuss the new terms. Yamauchi refused to give Nakamura
the special treatment he once had. Nakamura was furious, and spoke out publicly against
Nintendo's monopolistic practices. He also declared that Namco
would begin development of games for Sega's latest console: the Mega Drive. Hideyuki Nakajima would
run Atari Games into the 90's. In 1994, Time Warner decided to fold both Atari Games and Tengen into their new company: Time Warner Interactive. Around the same time, Nakajima announced he was changing his role within the company. But friends, family, and co-workers knew the truth. He was battling lung cancer and simply couldn't handle the responsibilities of running the company. On July 11, 1994, Hideyuki Nakajima passed away in Tokyo. Under Nakajima's leadership, Atari Games aggressively attacked Nintendo's business practices. This eventually led to Nintendo
changing their strict policies, which allowed developers to make
their games on other consoles. This helped systems like the Sega Genesis gain a stronger foothold in the market share, creating a more open market. Without the battle between Nintendo and Atari Games, the video game industry wouldn't be what it is today. That's all for this episode of Gaming Historian. Thanks for watching. [Bradinski music from Tetris plays]
Then what happened?
What happened: Atari's claim was thrown out, but the nature of the ruthless monopoly and total control of the market allowed Sega to sue Big N for BILLIONS. WITH INTEREST.
Sega will get nine figures of cash each year, or Nintendo gets thrown out of America. If you have 300 hours, read the SCOTUS case "Sega v. Nintendo". Basically created DMCA because of the wording in the judgment.
And, yes, it is why you cannot buy Nintendo stock on the Nikkei in America. They are considered an illegal cartel like DeBeers SA.
I had a black Tetris cartridge and a black pac-man cartridge, both Tengen. Was I a pirate back then?!
The headline doesn't feel right. Patents are public. They have to be.
Tengen Tetris was the best.
Funny enough, colecovision made an adapter that plugged in so you could play Atari games.
What does that mean, "illegally got a copy of the ninento lock out chip patent"? Patents are publicly disclosed 18 months after they are filed.
RBI Baseball. I played that all the time on the NES. Homerun after homerun...it was sweet.
That song was stuck in my head for years.
grew up on tengen tetris. best tetris ever.